KATANGA MINING LIMITED Management’s Discussion and Analysis For the three and six months ended June 30, 2015 and 2014 The following discussion and analysis is management’s assessment of the results of operations and financial condition of Katanga Mining Limited (“Katanga” or the “Company”) and should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto of the Company for the three and six months ended June 30, 2015, and 2014, and the audited consolidated financial statements and the notes thereto of the Company for the years ended December 31, 2014, and 2013. The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 “Interim Financial Reporting” (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). All dollar amounts are in United States dollars unless otherwise indicated. This information has been prepared as of August 12, 2015. Katanga’s common shares trade on the Toronto Stock Exchange (“TSX”) under the symbol “KAT”. Katanga’s most recent filings, including Katanga’s Annual Information Form for the year ended December 31, 2014, dated March 31, 2015, are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed through the internet at www.sedar.com. This Management’s Discussion and Analysis contains forward looking statements that are subject to risk factors as set out in items 13 and 18. Company Overview Katanga is a limited company whose common shares are listed on the TSX under the symbol “KAT”. The Company’s registered office address is Suite 300, 204 Black Street, Whitehorse, Yukon, Canada Y1A 2M9. Katanga's ultimate parent company is Glencore plc (“Glencore”) which owns 75.3% of Katanga's shares through its wholly-owned subsidiaries Glencore International AG and Glencore Finance (Bermuda) Limited. Katanga, through its 75% owned subsidiary Kamoto Copper Company SA (“KCC”), is engaged in copper and cobalt mining and related activities in the Democratic Republic of Congo (“DRC”). KCC is engaged in the exploration, mining, refurbishment, rehabilitation, development and operation of the Kamoto / Mashamba East mining complex (including “KTO Underground Mine” or “KTO”, “KTE Underground Mine” and “Etang South Underground Mine”), the Kamoto Oliveira Virgule copper and cobalt mine (“KOV Open Pit” or “KOV”), the T17 Mine consisting of “T17 Open Pit” and “T17 Underground Mine”, various oxide open pit resources, the Kamoto Concentrator (“KTC”) and the Luilu Metallurgical Plant (“Luilu”), (collectively, the “Project”), in the DRC.
31
Embed
KATANGA MINING LIMITED/media/Files/K/Katanga-mining-v2/...o Improvements to the froth skimmers in the KTC oxide flotation section which improved mass-pull in the Wemco cells; o Upgrade
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
KATANGA MINING LIMITED
Management’s Discussion and Analysis For the three and six months ended June 30, 2015 and 2014
The following discussion and analysis is management’s assessment of the results of operations and financial condition of Katanga
Mining Limited (“Katanga” or the “Company”) and should be read in conjunction with the unaudited interim condensed
consolidated financial statements and the notes thereto of the Company for the three and six months ended June 30, 2015, and 2014, and the audited consolidated financial statements and the notes thereto of the Company for the years ended December 31, 2014, and
2013. The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 “Interim Financial Reporting” (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”)
issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting
Interpretations Committee (“IFRIC”). All dollar amounts are in United States dollars unless otherwise indicated. This information has been prepared as of August 12, 2015. Katanga’s common shares trade on the Toronto Stock Exchange (“TSX”) under the symbol
“KAT”. Katanga’s most recent filings, including Katanga’s Annual Information Form for the year ended December 31, 2014, dated
March 31, 2015, are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed through the internet at www.sedar.com. This Management’s Discussion and Analysis contains forward looking statements that are
subject to risk factors as set out in items 13 and 18.
Company Overview
Katanga is a limited company whose common shares are listed on the TSX under the symbol “KAT”. The Company’s registered office address is Suite 300, 204 Black Street, Whitehorse, Yukon, Canada Y1A 2M9. Katanga's ultimate parent company is Glencore
plc (“Glencore”) which owns 75.3% of Katanga's shares through its wholly-owned subsidiaries Glencore International AG and
Glencore Finance (Bermuda) Limited.
Katanga, through its 75% owned subsidiary Kamoto Copper Company SA (“KCC”), is engaged in copper and cobalt mining and
related activities in the Democratic Republic of Congo (“DRC”). KCC is engaged in the exploration, mining, refurbishment, rehabilitation, development and operation of the Kamoto / Mashamba East mining complex (including “KTO Underground Mine” or
“KTO”, “KTE Underground Mine” and “Etang South Underground Mine”), the Kamoto Oliveira Virgule copper and cobalt mine
(“KOV Open Pit” or “KOV”), the T17 Mine consisting of “T17 Open Pit” and “T17 Underground Mine”, various oxide open pit resources, the Kamoto Concentrator (“KTC”) and the Luilu Metallurgical Plant (“Luilu”), (collectively, the “Project”), in the DRC.
Finished copper metal and concentrate tonnes 40,096 37,133 41,026 77,229 72,600
Finished cobalt tonnes 943 852 523 1,795 1,001
* Refer to item 20 Non-IFRS financial measures.
Review of 2015 Second Quarter Results
Financial
Profitability during Q2 2015, when compared to Q1 2015 and Q2 2014, was affected by:
o Movements in the copper and cobalt market price, resulting in a positive sales price variance
of $5.0 million when compared to Q1 2015 and a negative sales price variance of $53.7
million when compared to Q2 2014;
o A $35.3 million write-down of inventory to net realizable value driven by the copper price
decline ($10.3 million higher than Q1 2015 and $34.5 million higher than Q2 2014);
o Costs being higher due to increased processing costs at KTC and Luilu which was driven by
higher consumption of reagents and increased depreciation as a result of the enlarged asset
base;
o The cessation of borrowing cost capitalisation during Q1 2015 due to the completion of the
Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of $74.6
million for Q2 2015 (Q1 2015 - $24.4 million; Q2 2015 – nil); and
o Income tax recoveries of $53.9 million in Q2 2015 (Q1 2015 - $57.4 million; Q2 2014 - $47.6
million) due to deferred tax recognized on tax losses carried forward in the DRC.
Cash flows from operating activities decreased in Q2 2015, when compared to Q2 2014, due to the
decline in profitability, partly offset by decreased working capital requirements, notably prepayments
for mining fleet and capital expenditure. Cash outflows from operating activities improved in Q2
2015, when compared to Q1 2015, due to decreased working capital requirements, notably
prepayments for mining fleet, capital expenditure and royalties. These cash outflows were funded by
customer prepayments from Glencore.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2
Mining
During Q2 2015 the Company increased ore production by 9%, when compared to Q2 2014; this is
principally due to a record level of ore production at KOV Open Pit (an increase of 11% on Q2 2014)
where new mining fleet was commissioned in the intervening year. KTO also contributed with a
record level of ore production (a 4% increase compared to Q2 2014) due to higher stope availability
resulting from increased backfilling and development. Waste tonnes mined were 6% higher than Q2
2014.
Q2 2015 total ore tonnes mined were 19% higher than Q1 2015. Q1 2015 had lower volumes due to
dewatering issues at KOV during the DRC rainy season. Higher average copper mined grade was
achieved in Q2 as higher grade material at the pit bottom became more accessible.
In Q2 2015, the Company commissioned:
o Five new Caterpillar 793D haul trucks operating in KOV to increase ore and waste mining
capacity (increasing the fleet size to 19); and
o One Caterpillar AD45B haul truck operating in KTO to facilitate increased ore and waste
mining capacity (increasing the fleet size to 17).
Processing
Ore milled at KTC during Q2 2015 reached a record level driven by the increased volumes milled at
CM5 (commissioned as part of the Phase 5 Expansion Project). CM5 is currently milling at 99% of
design capacity.
Finished copper metal and concentrate produced decreased by 2% over Q2 2014 driven by the lower
mined grades and lower grade of concentrate feed to Luilu. Finished copper metal and concentrate
produced was an 8% increase over Q1 2015 driven by the increased contained copper in ore mined and
increased volumes of ore milled.
Cobalt metal produced totalled a record 943 tonnes for Q2 2015, an 80% increase from Q2 2014 and
an 11% increase from Q1 2015, due to the increased grades and volume fed together with improved
recoveries thereon.
During Q2, June 2015, the Company commenced with the Whole Ore Leach Project:
o Committed capital expenditure amounts to $10.5 million for site excavation and civil work.
o Concurrent with the construction of the Whole Ore Leach Plant and infrastructure, the current
Life of Mine Plan is being optimized to ensure that the appropriate ore blend will be supplied
to the Whole Ore Leach Process in order to maximize copper and cobalt recovery and to
minimize operating cost per unit.
In Q2 2015, the Company commissioned the following assets at KTC and Luilu in order to improve
throughputs and recoveries:
o Improvements to the froth skimmers in the KTC oxide flotation section which improved
mass-pull in the Wemco cells;
o Upgrade of cleaner bank cells in the oxide flotation section to improve oxide concentrate
grades;
o Upgrade of 20m3 tank cells in the old re-cleaner circuit with additional pre-floatation cells to
increase pre-float capacity;
o Installation of a second concentrate transfer line to increase concentrate transfer to Luilu; and
o A new pumping station at the Mupine tailings facility to increase water capacity to both KTC
and Luilu.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3
Review of 2015 First Half Year Results
Financial
Profitability during H1 2015, when compared to H1 2014, was adversely affected by:
o The decline in the copper and cobalt market price, resulting in a sales price variance of $94.2
million when compared to H1 2014;
o A $60.2 million write-down of inventory to net realizable value driven by the copper price
decline (H1 2014 - $0.8 million);
o Costs being higher due to increased mining expenditure, increased processing costs at KTC
and Luilu as a result of higher reagent consumption, and increased depreciation as a result of
the enlarged asset base; and
o The cessation of borrowing cost capitalisation during H1 2015 due to the completion of the
Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of $99
million for the six month period.
Income tax recoveries were $111.3 million in H1 2015 (H1 2014 - $103.5 million) due to deferred tax
recognized on tax losses carried forward in the DRC.
Cash flows from operating activities decreased in H1 2015 due to the decline in profitability, in
addition to increased working capital requirements, notably increased inventories and decreased
payables. These cash outflows were funded by customer prepayments from Glencore.
Mining
During H1 2015 the Company increased the ore production by 21%, when compared to H1 2014; this
is principally due to an increase in ore production of 28% at KOV Open Pit where new mining fleet
was commissioned in the intervening year. KTO contributed with an 8% increase in ore production,
compared to H1 2014 due to higher stope availability resulting from increased backfilling and
development. Waste tonnes mined were 5% higher than H1 2014.
H1 2015 contained copper increased by 13%, when compared to H1 2014, as the increased volume
was partly offset by the lower average copper grade achieved.
In H1 2015, the Company commissioned:
o Two Caterpillar R2900G loaders in KTO to increase the ore and waste handling capacity;
o One lube truck for use underground;
o Two Caterpillar D11 dozers and one Caterpillar 834K dozer to optimize mined waste
management;
o Five new Caterpillar 793D haul trucks operating in KOV to increase ore and waste mining
capacity (increasing the fleet size to 19); and
o One Caterpillar AD45B haul truck operating in KTO to facilitate increased ore and waste
mining capacity (increasing the fleet size to 17).
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4
Processing
Ore milled at KTC during H1 2015 was 31% higher than H1 2014 driven by the increased volumes
milled at CM5 (commissioned as part of the Phase 5 Expansion Project).
Finished copper metal and concentrate produced increased by 6% over H1 2014 driven by the
increased throughput volumes partly offset by the lower mined grades.
Cobalt metal produced totalled 1,795 tonnes for H1 2015, a 79% increase from H1 2014 due to the
increased volume fed together with improved recoveries thereon.
In H1 2015, the Company commissioned the following assets at KTC and Luilu in order to improve
throughputs and recoveries:
o Improvements to the froth skimmers in the KTC oxide flotation section which improved
mass-pull in the Wemco cells;
o Upgrade of cleaner bank cells in the oxide flotation section to improve oxide concentrate
grades;
o Upgrade of 20m3 tank cells in the old re-cleaner circuit with additional pre-floatation cells to
increase pre-float capacity;
o Installation of a second concentrate transfer line to increase concentrate transfer to Luilu;
o A new pumping station at Mupine tailings facility to increase water capacity to both KTC and
Luilu;
o An upgrade to the existing water filtration plant;
o A new oxide receiving thickener; and
o Enhancements to the roaster for utilities, calcine cooling and gas treatment.
Outlook
The Board of Directors has approved capital expenditure of $437 million for the upgrading of the
Company's production process to enable Whole Ore Leaching. The Company expects that this new
process, which is planned to be commissioned in 2017, will improve recoveries on oxide ore and
reduce unit costs, as well as increasing the life of mine. Due to related reductions in other planned
capital expenditures, the net effect on capital and operating expenditures through to the end of 2018 is
expected to be an increase of $104 million and a decrease of $488 million respectively. Glencore
International AG has indicated it will provide or procure the additional funding required, if any, for the
Whole Ore Leach Project in addition to any funding of an operational or capital nature necessary for
sustaining ongoing operations during the Whole Ore Leach Project build and commissioning phases.
During Q3 2015, the Company expects to commission:
o One new Caterpillar 6030 Backhoe Excavator in KOV to facilitate increased ore and waste
mining capacity and improve dewatering management;
o Two new Pump stations (P2A and P6A) in KOV to improve dewatering management and
optimize ore and waste removal;
o Upgrade of Wemco cells and reagent addition system (Tank Cells) at KTC to improve oxide
concentrate recoveries and grades;
o Upgrade of Spray Bars (Tank Cells) at KTC to improve recoveries by breaking the froth and
increasing the velocity of concentrate throughput to transfer tank; and
o New Heap Leach Phase 1 at Luilu (first stacking in Q3 2015 to facilitate a low operating cost
per unit model suitable for low grade ore).
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5
2. Operational performance
The production of copper cathode, cobalt metal and previously copper concentrate is achieved through
distinct processes which are described and reviewed below. The production statistics for each of these areas
are presented below, for the current and comparative periods, and in item 5 – Summary of Quarterly
Results, for the last eight quarters.
Mining
Three months ended Six months ended
June 30, March 31, June 30, June 30,
2015 2015 2014 2015 2014
Ore mined
KOV Open Pit tonnes 1,669,055 1,343,544 1,509,804 3,012,599 2,359,656
Mashamba East Open Pit tonnes 4,312 - - 4,312 -
T17 Open Pit tonnes - - - - 33,638
KTO Underground tonnes 526,292 504,725 504,213 1,031,017 951,614
Etang South Underground tonnes 1,695 - - 1,695 -
Total tonnes 2,201,354 1,848,269 2,014,017 4,049,623 3,344,908
Waste mined
KOV Open Pit tonnes 9,395,807 6,215,360 9,159,252 15,611,167 15,148,828
Mashamba East Open Pit tonnes 304,057 - - 304,057 -
T17 Open Pit tonnes - - - - 30,362
KTO Underground tonnes 57,943 103,179 112,413 161,121 222,045
Etang South Underground tonnes 14,954 - - 14,954 -
KTE Underground tonnes 44,586 67,650 - 112,237 -
T17 Underground tonnes - 4,925 7,879 4,925 14,310
Total tonnes 9,817,347 6,391,114 9,279,543 16,208,461 15,415,546
Average Cu grade
KOV Open Pit % 3.95 3.66 4.05 3.82 4.18
Mashamba East Open Pit % 3.42 0.00 0.00 3.42 0.00
T17 Open Pit % 0.00 0.00 0.00 0.00 2.17
KTO Underground % 3.06 3.32 3.22 3.19 3.31
Etang South Underground % 0.45 0.00 0.00 0.45 0.00
Total average % 3.74 3.57 3.84 3.66 3.92
Average Co grade
KOV Open Pit % 0.52 0.46 0.40 0.49 0.41
Mashamba East Open Pit % 0.41 0.00 0.00 0.41 0.00
T17 Open Pit % 0.00 0.00 0.00 0.00 0.00
KTO Underground % 0.31 0.38 0.48 0.34 0.50
Etang South Underground % 0.45 0.00 0.00 0.45 0.00
Total average % 0.47 0.44 0.42 0.45 0.43
Recorded rainfall
KOV Open Pit mm 193 494 119 687 733
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
6
Review of 2015 Second Quarter Results
KOV Open Pit
The Q2 2015 increase in ore and waste mined, when compared to Q2 2014, is principally due to the
commissioning of new mining fleet during the intervening year. The Q2 2015 increase in ore and
waste mined, when compared to Q1 2015, is due to dewatering issues encountered during the DRC
rainy season during Q1 2015. This effect also resulted in the higher average copper grade achieved as
higher grade material at the pit bottom became more accessible.
In Q2 2015, the Company commissioned five new Caterpillar 793D haul trucks to increase ore and
waste mining capacity.
KTO Underground Mine
KTO mined 4% more ore in Q2 2015 than Q2 2014 and Q1 2015 due to higher stope availability
resulting from increased backfilling and development.
Additional mining fleet was also commissioned during 2014.
During Q2 2015, the Company commissioned one Caterpillar AD45B haul truck to facilitate increased
ore and waste mining capacity.
Other mines
Mashamba East Open Pit, commenced development during Q2 2015, with 304,057 tonnes of waste and
4,312 tonnes of ore mined. As at December 31, 2014, Mashamba East Open Pit had measured and
indicated mineral resources of 75 million tonnes of ore containing 1.8% copper and 0.38% cobalt. Etang South Underground Mine, an extension of KTO, mined 14,954 tonnes of waste and 4,312 tonnes
of ore during Q2 2015. KTE Underground Mine, an extension of KTO, continued development during Q2 2015, with 44,586
tonnes of waste mined and 539 metres of primary development achieved (Q1 2015 - 67,650 tonnes of
waste mined and 767 metres of primary development). T17 Underground Mine development continued during Q2 2015, with developmental ore extraction
still expected to commence in 2016.
Review of 2015 First Half Year Results
KOV Open Pit
The H1 2015 increase in ore and waste mined, when compared to H1 2014, is principally due to the
commissioning of new mining fleet during the intervening year.
In H1 2015, the Company commissioned:
o Two Caterpillar D11 dozers and one Caterpillar 834K dozer to optimize mined waste
management; and
o Five new Caterpillar 793D haul trucks to increase ore and waste mining capacity.
KTO Underground Mine
KTO mined 8% more ore in H1 2015 than H1 2014 due to higher stope availability resulting from
increased backfilling and development.
Additional mining fleet was also commissioned during H2 2014 and H1 2015.
During H1 2015, the Company commissioned:
o Two Caterpillar R2900G loaders to increase the ore and waste handling capacity;
o One lube truck for use underground; and
o One Caterpillar AD45B haul truck to facilitate increased ore and waste mining capacity.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
7
Other mines
KTE Underground Mine mined 112,237 tonnes of waste and 1,306 metres of primary development
were achieved. T17 Underground Mine mined 4,925 tonnes of waste during H1 2015 (H1 2014 – 14,310 tonnes).
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
18
6. Commitments
The following table summarizes the Company’s contractual and other obligations as at June 30, 2015.
(1) The capital expenditure commitments relate to the Whole Ore Leach Project ($10.5 million) and other
infrastructure projects. Glencore has indicated it will provide or procure the additional funding
required, if any, for the completion of these projects. (2) Pursuant to the terms of the Joint Venture Agreement (the “JVA” – refer to item 15), all installations
and infrastructures within the perimeter of the KCC concession area are being rented for an annual
minimum royalty payment to Gécamines of $1.8 million. (3) In order to meet the needs for additional and reliable electrical power for the development of their
mining activities, KCC and Mutanda Mining SARL (“Mutanda”) (a related party of the Company and
part of the Glencore group), entered into agreements with the DRC electricity provider, La Société
Nationale d’Electricité (“SNEL”), to fund the rehabilitation of certain of SNEL’s generation and
transmission infrastructures (the “Power Project”). KCC will fund $367.1 million for the Power
Project commencing from the second quarter of 2012 to the end of 2017 but will be reimbursed $244.7
million by Mutanda. Accordingly, KCC's net funding contribution will be $122.4 million, of which
$78.5 million has been funded as of June 30, 2015 (included in other non-current assets in the
statement of financial position). $362.1 million of this amount will be reimbursed by SNEL ("Debt
Amount") via credits to power bills payable by the Company and its affiliates. Interest will accrue at 6
months LIBOR + 3% on the Debt Amount from date of drawdown to date of reimbursement. SNEL
will retain ownership of the generation and transmission infrastructures throughout the duration of the
Power Project and thereafter. Glencore has indicated it will provide or procure the additional funding
required, if any, for the completion of the Power Project.
7. Contingent Liabilities
The Company and its subsidiaries are subject to routine legal proceedings and tax audits. While the
Company cannot predict the results of any legal proceedings, it believes it has meritorious defences against
those claims. The Company believes the likelihood of any liability arising from these claims to be remote
and that the liability, if any, resulting from any litigation or tax audits, individually or in aggregate, will not
have a material adverse effect on its consolidated earnings, cash flow or financial position.
The Company’s operations in the DRC are subject to various environmental laws and regulations. The
Company is in material compliance with those laws and regulations. Environmental contingencies are
accrued by the Company when such contingencies are probable and reasonably estimable. At this time, the
Company is unaware of any material environmental incidents at its operations in the DRC.
Refer to item 13 of this Management Discussion and Analysis.
Total Less than 1
year
1-3 years 4-5 years After 5
years
Payments due by year $’000 $’000 $’000 $’000 $’000
Capital expenditure commitments(1) 81,775 81,775 - - -
Gécamines minimum royalty
payment(2) 18,000 1,800 3,600 3,600 9,000
Power Project(3) 43,864 21,802 22,062 - -
143,639 105,377 25,662 3,600 9,000
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
19
8. Liquidity and Capital Resources
As at June 30, 2015, the Company had cash and cash equivalents of $32.2 million (December 31, 2014 –
$9.9 million), bank overdrafts of $0.5 million (December 31, 2014 – $20.4 million) and a working capital
surplus of $7.7 million (December 31, 2014 – $388.8 million).
In December 2011, the Company announced the execution of two loan facilities with Glencore Finance
(Bermuda) Limited, a subsidiary of Glencore, with total available borrowing of up to $635.5 million (the
“Loan Facilities”). $120.0 million was provided to the Company during the year ended December 31, 2011,
as a new term loan facility (the “Term Loan”) to fund in substantial part the redemption of the Company's
debentures. On December 13, 2012, the second facility (the “Senior Facility”), making up the balance of
the available borrowing and amounting to $515.5 million, was provided to a subsidiary of the Company and
together with other subsidiaries of the Company as guarantors, as a senior secured credit facility to fund a
portion of the Updated Phase 4 Expansion Project not covered by the Company's cash flows.
On November 26, 2014, the Company announced the execution of extended and increased loan facilities
with Glencore Finance (Bermuda) Limited. The amended facilities are comprised of the Senior Facility
and Term Loan, each as amended (the "Amended Loan Facilities") as follows:
The Senior Facility was increased to include the existing $515.5 million Senior Facility (plus accrued
interest thereon) and $1,815.8 million of customer prepayments provided by Glencore International AG to
KCC (plus accumulated interest thereon), which were converted into loans bearing interest at 10% per
annum and provided by Glencore Finance (Bermuda) Limited. Included in the total amount of the
amended Senior Facility was further funding of $50.0 million, which was subsequently fully drawn down,
made available according to the cash flow requirements of KCC based on the approved budgets for the
Phase 5 Expansion Project and the Power Project. The amount of the Term Loan remained unchanged at
$120.0 million plus accumulated interest. The maturity of the Senior Facility and the Term Loan was
extended to January 1, 2021. All other material terms of the Senior Facility and the Term Loan remained
the same.
The Company's 75% interest in KCC (which holds the copper and cobalt project assets) has been pledged
as security for the Senior Facility along with certain other assets of the Company and its subsidiaries. As
security for the Term Loan and additional security for the Senior Facility, the Company has agreed, if a
Loan Facility is in default, to complete a discounted rights offering with a Glencore subsidiary providing a
standby commitment, to repay the Loan Facility. In the case of the Senior Facility, a Glencore subsidiary
has agreed to exercise its right to compel the Company to complete the discounted rights offering prior to
realizing on the Glencore subsidiary's other security. The Loan Facilities contain undertakings which
restrict the Company’s and other Company subsidiaries’ ability to (i) make acquisitions, (ii) grant loans,
(iii) provide guarantees, (iv) pledge or dispose of their assets, as well as certain additional undertakings
which are customary for these type of transactions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20
The Amended Loan Facilities balance is comprised of the following:
June 30,
2015
$’000
December 31,
2014
$’000
Balance, beginning of the year 2,770,863 717,990)
Changes during the period:
Transferred from customer prepayments - 1,910,355)
Facility draw-down 1,800 48,200)
Interest capitalized and payable on maturity(1) 110,602 67,340)
Interest payable on maturity but not yet capitalized(1) 28,561 26,467)
Accretion - 511)
Balance, end of the period 2,911,826 2,770,863)
(1) Interest is payable on any amount drawn under the Amended Loan Facilities at a rate of 10% per
annum. Before finalization of the Amended Loan Facilities, financing received through customer
prepayments bore interest at a floating rate of 3-month LIBOR plus 3%. Interest is capitalized
twice a year to the Amended Loan Facilities and payable on maturity. The amount of interest
payable has therefore been split between interest capitalized and interest payable but not yet
capitalized to the Amended Loan Facilities.
The Company has in place a rigorous planning and budgeting process to help determine the funds required
to support the Company’s normal operating requirements on an ongoing basis and its planned capital
expenditures. The budgeting process included stress testing of the assumptions underlying the budget. It is
anticipated that the Company’s existing cash balances, cash flow from operations, existing credit facilities
and advances from Glencore will be sufficient to fund the operations, capital expenditure, the Whole Ore
Leach Project and the Power Project for the next year. Glencore has indicated it will provide or procure the
additional funding required, if any, for the operations, capital expenditure, the Whole Ore Leach Project
and the completion of the Power Project. Further detail on the Company’s commitments can be found in
item 6 and 13 of this Management’s Discussion and Analysis.
9. Accounting Policies, Key Judgments and Estimates
The unaudited interim condensed consolidated financial statements have been prepared using the same
accounting policies, key judgments and estimates as applied in the 2014 annual audited consolidated
financial statements. The following new and revised standards and interpretations were adopted effective
for annual accounting periods beginning on or after July 1, 2014:
Amendments to IAS19 – Defined Benefit Plans: Employee Contributions
Annual Improvements 2010-2012 Cycle
Annual Improvements 2011-2013
The adoption of these new and revised standards and interpretations did not have a significant impact on
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
21
10. Outstanding Share Data
(a) AUTHORIZED
An unlimited number of common shares with no par value.
(b) ISSUED AT JUNE 30, 2015
1,907,380,413 common shares.
(c) SHARE OPTIONS
The following table reflects the continuity of share options during the periods presented:
Number of share
options
Weighted Exercise
Price per Share (1)
Outstanding at January 1, 2014 7,153,658) $2.85)
Unchanged during the year -) -)
Outstanding at December 31, 2014 7,153,658) $2.85)
Forfeited during the period (2,359,636) ($0.99)
Outstanding at June 30, 2015 4,794,022) $3.76)
(1) Denominated in Canadian dollars.
11. Related Party Transactions
Related parties and related party transactions not otherwise disclosed elsewhere in this Management’s
Discussion and Analysis include:
Galif Investments Limited (“Galif”), registered in Bermuda, is an aircraft management company whose
ultimate beneficial owner is Glencore. During 2015 and 2014, Galif provided aircraft maintenance and
auxiliary services to the Company in the normal course of business and on arm’s length commercial terms.
Glencore is the Company’s ultimate majority shareholder and is represented on the Board of Directors of
the Company. In November 2007, Glencore’s wholly owned subsidiary, Glencore International AG entered
into a 100% off-take agreement for concentrate sales with the Company and commencing January 1, 2009,
pursuant to additional off-take agreements, all copper and cobalt metal produced are sold to Glencore
International AG on market terms for the life of any mines and plants operated, acquired and / or developed
by the Company in the DRC. The off-take agreements were entered into before Glencore was a related
party of the Company. In December 2011, the Company entered into the Loan Facilities with total
available borrowing of up to $635.5 million, which was fully drawn down during 2011 and 2012. Such
Loan Facilities were amended in 2014 (refer to item 8).
Mutanda Mining SARL (“Mutanda”) is a copper and cobalt producer located in the DRC and is a 69%
owned subsidiary of Glencore. During the year ended December 31, 2012, the Company commenced the
Power Project with Mutanda and Kansuki SPRL (since merged with Mutanda) (refer to item 6).
Additionally, there is an agreement in place for employees of either Katanga or Mutanda to use charter
flights operated by either company with associated costs invoiced. In November 2014, the Company’s
Board of Directors, including its independent directors, unanimously approved entering into a contract for
the sale by Mutanda of copper concentrate to the Company, in the ordinary course of business and on arm’s
length commercial terms. Further, during 2015 and 2014, Mutanda supplied processing consumables and
medical services to the Company. These services were provided in the normal course of business and on
arm’s length commercial terms.
Mopani Copper Mines Plc (“Mopani”) is a copper and cobalt producer located in Zambia. Mopani is a
73.1% owned subsidiary of Glencore. During 2015 and 2014, Mopani supplied sulphuric acid and other
consumables to the Company in the normal course of business and on arm’s length commercial terms.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
22
Glencore Technology Proprietary Limited (“Glencore Technology”) is a provider of mining services and
is a 100% subsidiary of Glencore. During 2015 and 2014, Glencore Technology provided mining
equipment and services to the Company, in the normal course of business and on arm’s length commercial
terms.
All transactions were in the normal course of business and recorded at exchange amounts. The following
table provides the total amount of the transactions entered into with these related parties:
Three months ended Six months ended
June 30, June 30,
2015
$’000
2014
$’000
2015
$’000
2014
$’000
Purchases from related parties
Galif 693 597 1,170 1,375
Glencore International AG(1) 92,037 50,887 175,128 95,463
Mopani 6,619 3,218 11,734 5,920
Mutanda 2,944 - 5,449 -
Glencore Technology 631 177 1,006 192
Sales to related parties
Glencore International AG 248,413 305,208 469,191 515,056
Mutanda(2) 302 - 3,013 -
As at
June 30,
2015
$’000
As at
December 31,
2014
$’000
Amounts owed to related parties
Galif 1,170 2,384
Glencore International AG(3) 3,513,512 2,773,682
Mopani 4,684 9,442
Mutanda(4) 29,143 29,282
Glencore Technology 809 283
Amounts owed by related parties
Glencore International AG 52,410 29,473
Mutanda - 2,556
(1) Amount includes interest payable under the Amended Loan Facilities and customer prepayments. (2) Amounts included in cost of sales in the Operating Results as these are recoverable charter flight
costs which are netted against the underlying expense. (3) Amount includes customer prepayments and Amended Loan Facilities. (4) Amount represents advanced payments received on the Power Project (refer to item 6) and
amounts owing for the purchase of concentrate, processing consumables and medical services.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
23
12. Financial Instruments
At June 30, 2015, and December 31, 2014, the Company’s financial instruments consisted of cash and cash
equivalents, receivables, accounts payable and accrued liabilities, bank overdrafts, customer prepayments,
other non-current liabilities and the Amended Loan Facilities. With respect to all of these financial
instruments, the Company estimates that the fair value of these financial instruments approximates the
carrying values at June 30, 2015 and December 31, 2014, respectively.
The Company values instruments carried at fair value using quoted market prices, where available. Quoted
market prices represent a Level 1 valuation. When quoted market prices are not available, the Company
maximizes the use of observable inputs within valuation models. When all significant inputs are
observable, the valuation is classified as Level 2. Valuations that require the significant use of unobservable
inputs are considered Level 3.
The following table outlines financial assets and liabilities measured at fair value in the consolidated
financial statements and the level of the inputs used to determine those fair values in the context of the
hierarchy as defined above as at June 30, 2015, and December 31, 2014: